Income-Tax Bill, 2025 : A Landmark Reform for Simplified and Transparent Taxation

The Income-Tax Bill, 2025, aims to simplify and modernize India’s tax system by consolidating and amending existing laws. The bill introduces significant structural, procedural, and administrative reforms while maintaining the core taxation framework. It seeks to reduce complexities, eliminate redundancies, and promote ease of compliance for taxpayers.

Structural Reforms

One of the key changes in the bill is the restructuring of tax provisions. The new law consists of 23 chapters and 536sections, compared to 298 sections in the Income-tax Act, 1961 with effective sections of 819. The concept of “Tax Year” has been introduced, replacing the terms “Previous Year” and “Assessment Year”, simplifying the understanding of tax periods. Additionally, all 112 definitions have been consolidated into a single section instead of being scattered throughout the Act, enhancing clarity. The bill has also removed 1200 provisos and 900 explanations, significantly reducing legal complexities and making the law more concise.

Procedural & Administrative Changes

To promote transparency and efficiency, the bill expands the Faceless Assessment System and introduces a Taxpayer Charter, ensuring better service standards for taxpayers. The CBDT (Central Board of Direct Taxes) now has the power to introduce tax schemes and compliance measures independently, eliminating the need for parliamentary approval for procedural matters. Filing deadlines have been extended to ease taxpayer compliance: the tax audit deadline has been moved from September 30 to October 31, and the Income Tax Return (ITR) filing deadline from October 31 to November 30. Furthermore, the tax audit limit for businesses has been increased to ?3 crores, and for professionals from ?50 lakh to ?75 lakh ?for the individuals or HUF or partnerships firms excluding LLPs who have opted for presumptive taxation (where the amount or aggregate of amounts received, in cash, does not exceed 5% of the total turnover or gross receipts), reducing the compliance burden on small businesses and professionals.

Taxation of Individuals & Corporates

A major policy shift in the bill is the new tax regime becoming the default system. Once a taxpayer opts into the new regime, they cannot switch back to the old regime unless specific conditions are violated. This move encourages long-term consistency in tax planning Individuals and Hindu Undivided Families (HUFs) also benefit from an optional lower tax slab under the simplified tax regime.

To curb tax evasion, stricter compliance measures have been introduced for offshore accounts. Severe penalties will be imposed on taxpayers failing to disclose foreign income or assets, ensuring greater transparency in cross-border transactions.

Changes in Capital Gains & Business Income

The bill proposes key changes in capital gains taxation and business income. GST will no longer be included in the cost of assets if an input tax credit is claimed, ensuring accurate tax calculations. Additionally, clubbing provisions related to a spouse’s income have been modified. Now, income will be clubbed based on technical or professional qualifications rather than just substantial interest in a business. This amendment brings more clarity to taxation in family-run businesses.

Further, to prevent tax avoidance, a cap on interest deductions for intra-group loans has been introduced, preventing multinational companies from shifting profits to low-tax jurisdictions through excessive interest payments.

Taxation of Digital Assets & Emerging Sectors

Recognizing the growing prominence of digital transactions, the bill formally recognizes Virtual Digital Assets (VDAs) such as cryptocurrencies and NFTs, imposing a flat tax rate of 30% on gains from such assets. To enhance tracking, a TDS (Tax Deducted at Source) of 1% has been introduced on crypto transactions. Additionally, income from online gaming is now taxable, reflecting the government’s efforts to regulate digital-based earnings.

Reforms for Non-Profit Organizations & Trusts

A significant shift in the bill is the creation of a new taxation framework for Non-Profit Organizations (NPOs). The term “trust” has been replaced with “Non-Profit Organization (NPO)”, and a separate chapter consolidates registration, compliance, and taxation rules for NPOs. New restrictions have been imposed on the business activities of NGOs, ensuring they focus on charitable objectives rather than commercial ventures. Additionally, updated tax exemption rules for charitable and religious trusts bring more transparency to the sector.

Anti-Avoidance & Compliance Measures

To counter tax avoidance, General Anti-Avoidance Rules (GAAR) have been strengthened, imposing stricter penalties on impermissible avoidance arrangements. A mandatory disclosure requirement for foreign assets and income has been introduced, with severe consequences for non-compliance.

Other compliance measures include TDS on barter transactions and free products, where tax will be levied based on fair market value. Additionally, the faceless assessment system has been expanded, reducing human intervention and minimizing tax-related disputes.

In nutshell, the Income-Tax Bill, 2025, represents a significant shift towards a simplified, transparent, and technology-driven tax system. It reduces legal complexities, broadens the tax base, enhances digital compliance, and curbs tax evasion. With its focus on modernizing taxation, supporting businesses, and ensuring strict compliance, this bill is a landmark reform in India’s taxation landscape.

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